Black & Veatch NatGas Report: Industry Leaders Optimistic About Sector Despite Pricing Forecasts

 Black & Veatch NatGas Report: Industry Leaders Optimistic About Sector Despite Pricing Forecasts

Natural gas industry leaders are enthusiastic about the sector’s future, according to a new report from Black & Veatch.

Released Wednesday, the 2015 Strategic Directions: U.S. Natural Gas Industry report looks at the ongoing supply boom, lessened demand growth and the effects of low oil prices on the industry’s ability to plan for the future.

“Over the past year, falling commodity prices have changed the natural gas landscape even as demand forecasts remained positive,” said John Chevrette, president of Black & Veatch’s management consulting business.  “Across the value chain this creates opportunities to develop strategies for sustainability and to boost growth in the low price environment.”

Black & Veatch is a provider of engineering, consulting, construction and operations services to the energy, water, telecommunications and government sectors.  The company's fourth annual report was compiled from the survey responses of more than 400 participants who identified themselves as natural gas utility and service providers or natural gas industry providers.

Among the participants, more than 80 percent said the North American natural gas industry’s outlook is positive, and 60 percent of local distribution companies see natural gas-powered distributed energy resources as an opportunity for growth.

“Everybody’s optimistic about the future of gas in the U.S.,” said Patrick MacElroy, director of media relations for Black & Veatch.  “But the pricing and the valuation of the underlying assets for some of the more debt-laden producers is proving challenging.”

Black & Veatch is forecasting gas prices to remain below $5 through 2025.

MacElroy says industry leaders foresee producers saddled with heavy debt, unable to turn a profit, acquiescing to mergers, acquisitions and even bankruptcies.

"The current natural gas market reflects the decoupling of the mid- and downstream sectors from the more price sensitive production side," said Dean Oskvig, president of Black & Veatch's energy business.  "Yet, over the long term, firms across the spectrum that embrace operational efficiency and seek out new markets will survive these challenging times."

According to Black & Veatch’s report, about three-quarters of those surveyed agreed that new carbon dioxide (CO2) regulations, including the final Clean Power Plan (CPP), will have a positive effect on the industry.

The release of the final CPP initially threw the natural gas industry for a loop.  A draft version of the CPP, MacElroy says, included credits for states with new combined-cycle and combustion turbines.  The omission of those credits in the final CPP introduced doubt across the industry about natural gas’ role in the country’s energy mix.

“There is no reference (in the final CPP) to natural gas as a preferred means of compliance,” said MacElroy.  “But the reality is that in order to hit these targets and maintain a grid, there is going to be a significant addition of natural gas generation capacity in the U.S.”

Atop the list of issues survey participants sited as most important in the industry: Safety, aging infrastructure, environmental regulation, economic growth and available pipeline capacity.

“As generators and others start using more and more gas, there’s definitely a need for pipeline capacity or additional pipeline capacity in the marketplace,” said Denny Yeung, principal consultant for Black & Veatch and leader of the company’s natural gas fundamentals group.

Rick Porter, director of Black & Veatch’s management consulting group, has worked nearly four decades with natural gas pipelines, primarily in the regulatory arena for pipeline projects and new service developments.

“The pipeline industry is very proud of its safety record…I can tell you from having worked in the industry and from consulting for the industry, safety is just the highest priority with the industry,” said Porter.  “It’s something they’re totally committed to, and so that’s something that’s absolutely critical to the industry.”

The U.S. Federal Energy Regulatory Commission passed a new policy in 2015 permitting pipelines to track the costs of implementing spending associated with modernizing their facilities.

“Pipelines are beginning to talk to their customers about how they’re going to spend their money to make sure that their systems are continuing to be safe and how they’re going to recover that from their shipping community,” said Porter.  “So it’s going to be a joint effort between the shippers and the pipelines and the regulatory agencies to maintain those safe operating systems. Everyone understands it’s a priority and they’re all working to make sure that it happens.”

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